When it comes to insurance, I took a more self planning approach, or shall I say, a more self-insurance-conscious approach. This stems from being acquainted early since 2003 with what insurance advisors shared on insurance basics. It does not make me an expert, but it does equipped myself with the knowledge to discern some of the undesirable sales tactics of advisors.
I determined early that I treat insurance as an expense, and that I do not need cash values from the policies.Thus most of my insurance policies do not mature and give out cash values. Many of my peers fail to frame insurance as an expense and demanded cash values out of it.
I made it very clear to my advisors that I hear what they have to advise, but I would like to build my wealth with financial instruments that is insurance unrelated. Over time, I come round the idea that although savings insurance plans are not for me, they can be rather helpful for a large number of people due to their behavioural issues.
I have both Term life insurance policies, Limited whole life insurance policy and Group term life insurance. I learn over time that, I can’t find much good points to say, or how necessary whole life insurance is, despite my original idea that there must be something good about whole life insurance if not, people won’t be selling it.
Most of my term life insurance policies are rather affordable, except for the first term life insurance policy that I bought from my AIA financial advisor.
The plan, is called the AIA Recovery Lifeline, which is a level term plan that covers $100,000 of death, TPD and critical illness to the age of 75 years old.
A costly term plan
I didn’t realize how costly this term plan is if I don’t compare, which I didn’t. 10 years ago it wasn’t so easy to compare plans. The plans were made in a way that comparison is challenging. If you want to do due diligence, you can email various insurance companies to ask for quotation. Nowadays, you have forum to give you a rough heuristic on a ball park figure.
AIA Recovery Lifeline runs for 51 years to 75 years old and costs $809 per year in premiums.
2 years later, I got a Tokio Marine term life insurance which runs to 65 years old and costs $588 per year.
I felt that the Recovery Lifeline is rather costly, given that both policies were bought close together. A part of the reason is because the Recovery Lifeline runs 10 years after 65 years old.
The difference between whole life insurance and term life insurance is that while term life can be rather cost effective before age of 65 years old due to the relatively low probability of claims. After 65 year old, the probability becomes much higher, so does the risks, and so does the cost.
I lived with this plan for 10 years, I tend to look past the costs. However, deep down, I wasn’t happy paying 37% more than my Tokio Marine term life insurance.
I have been paying the insurance premium on an annual basis by cash instead of GIRO. This year, I looked at the bills for a while and after thinking through, I decided to give it a try and get a policy to replace the Recovery Lifeline.
The Risks of replacing the policy with another
Replacing a term policy with another term policy is rather risky. Back when I have the Recovery Lifeline, I didn’t have some of the health complications I experience now. As such, there was no exclusions to pre-existing condition and there was no loading for the conditions.
The risk here is that, these health complications might matter, meaning they are excluded in the coverage or the insurance company load you with more premiums. In both situations, it may be wiser to stick to the existing term insurance policy.
Perhaps you will feel the dilemma harder if your insurance is tied to an investment linked policy you hope to cancel or an expensive whole life policy.
If this does not work out, my dependents would have $100k less in critical illness coverage.
Why I decided to go ahead
2 things tilt my decision to go ahead with this change. I knew I was an insurance risk, but a few months ago, my financial planner recommended a disability income insurance policy.
The underwriting was roughly the same, and I declared whatever medical complications that I have. I was surprised the policy went through without additional loading.
Surprising because usually disability income was known to be more stringent. If this is more stringent, then perhaps I don’t have that big of an insurability problem after all.
Secondly, my financial situation is rather different now that I am closer to 35 compared to 10 years ago. 10 years ago, I have hardly any net worth. Should I passed away, or get into some deep medical problems, no one is going to help me or my parents.
The financial burden on them will be rather high. This time around, I have a much higher net worth, that in the event of the same risks, the net worth in the worse case can be put into good use.
I look at these 2 reasons and felt that I could probably try replacing the policy.
I decided on Aviva MyProtector Plus, a level term policy that covers death, TPD and critical illness. The annual premium was $585.90. The duration to insured was till I am 60 years old.
The duration is much shorter by 11 years. The key risk is to ensure that I understand well how many dependents would still depend on me by then. If I won’t have anymore dependents by then, I do not need this policy anymore.
I believe I will do ok.
Why its not a good idea to not declare or declare less
For both policies that I have signed up this year, I want to be open about my health condition.
Many would want to game the system, by not declaring certain things, in the hopes that the insurance companies would not discover the health complications, so that the policy would not be approved.
To put this into perspective, the reason we purchased insurance in the first place is that, there are some risks that have low probability of happening, but when they happen, you cannot take that monetary pain.
By trying not to declare, and getting the policy to be approved we are playing another gamble on top of the original low probability gamble. We are hoping that when the medical event happen, you can lay claim to that money. There is of course a possibility then that you cannot claim when the insurer discovered that this is pre-existing.
Would you want a scenario when you need $300k and you are unable to get the $300k just because you want to save some premiums? Or pay for premium diligently and at the end of the day your kins find out they cannot get anything.
I think not.
Even if you declare, it doesn’t mean its 100% claimable. In 2007, Aviva ( the same company which I am about to buy the term policy from) rejected a hospital and surgical plan claim from a lady for breast cancer treatment, claiming that the symptoms occur before the policy was in place (You have to Google the article up):
Backed by medical reports, her insurer Aviva said that the 9cm lump found in her breast had begun growing before her policy took effect.
It refused to pay, saying her cancer was a pre-existing condition at the time that she signed up for her MyShield hospitalisation policy – never mind that she had no idea at the time.
It was rejected because the Aviva plan excludes all pre-existing conditions regardless of whether there is disclosure or non-disclosure or whether the insured has knowledge of the condition.
Its ‘pre-existing condition’ clause states that ‘any injury, illness, condition nor symptom which originated…prior to the policy commencement date whether or not treatment, or medication, or advice, or diagnosis was sought or received’ is excluded under the policy.
When contacted on the rationale for its policy, Aviva’s chief executive, Mr Keith Perkins, said that by having an objective evaluation on when an illness originated, it is protecting the interests of the majority of its policyholders.
This guards against potential abuse which may lead to higher premiums if claims go up. ‘If we rely on what customers know, we’ll never know,’ said Mr Perkins. Aviva receives about 5,000 MyShield claims per year and less than 1 per cent of\nthese claims are rejected because of pre-existing conditions.
A Straits Times check with rival insurers AIA, Great Eastern (GE), NTUC Income and Prudential found that they adhere to this principle and would have paid Ms Vaz’s claim. The clauses of GE and Prudential are similar. Prudential’s clause states that a pre-existing condition is the existence of any signs or symptoms for which treatment, medication, consultation, advice or diagnosis has been sought or received by the life assured or would have caused an ordinary prudent person to seek treatment, diagnosis or cure, prior to the cover start date of this benefit or the date of any reinstatement’.” GE added in response to queries about Ms Vaz’s situation that even if the doctor were able to estimate how long the condition had existed, it ‘would not be fair’ on the policyholder if the insurer declined the claim.
The clauses of AIA and Income are similar to each other, but more ambiguously phrased. AIA’s clause states that ‘any pre-existing illnesses, diseases, impairments or conditions from which the insured is suffering prior to the policy date…will not be covered’, without specifying if the policyholder needs to be aware that he is suffering from the illness. However, both insurers told The Straits Times that if a policyholder is genuinely unaware of a medical condition which is diagnosed only after the policy inception, they would pay the claim. AIA added that the insured must not have any symptoms at the time he took up the policy.
Aviva looks like a more stricter insurer or one that likes to play punk with whether you can claim or not. When it comes to term plans, cost may be the ultimate determinant but could factors like this matter? I think so too.
Some insurers can have lax underwriting and make it easy for you to get in but be more stringent in whether you can claim successfully or not (bad) or they can have stringent underwriting and make it easy for the claim to be administered (better). This I felt should be part of the equation to determine whether the product is good.
The difficulty here is that, can you declare this as part of your metric without tearing down the relationship with certain insurance companies for DIY Insurance?
The pre-existing conditions is define as such for Aviva (and they can be very different):
Means any condition or illness which existed or was existing or the cause or symptoms of which existed or were existing or evident, or any condition or illness which the Life Assured suffered or was suffering from, prior to the Policy Issue Date, issue date of this Supplementary Benefit, Benefit Commencement Date of this Supplementary Benefit or the reinstatement date of this Supplementary Benefit, whichever is later, unless the condition or illness had been declared and accepted by Us.
This basically means, even if you are suffering symptoms but don’t declare it, you are not allowed to claim. However, if you declare, and they admitted it, then they would factor the condition in.
It gives a greater piece of mind to declare it.
My Experience with DIYInsurance
This insurance policy was purchased via DIYInsurance.com.sg . To be honest, I was going to purchase this policy through my IPP Financial planner, the third IPP planner that IPP assigned to me after the previous 2 left the organization.
I would still purchase the policy from her, my financial planner, that is, before she text me whether I will be interested in a Tokio Marine Retirement Plan, then again for an Aviva competing Retirement Plan, then 2 more endowment plans from Zurich Insurance. This is after I have explained how I plan on building my own wealth.
I think its best that I fall back onto myself again.
The first stop was to go straight to screen for the product that I want. Since I was looking for Critical Illness Coverage, a filter to match my profile of 35 year old male and critical illness, term plans provide me with a list of plans available.
After viewing some of the differences, I can then apply for the policy by filling up the form. A person from DIY Insurance will contact me with the exact amount of coverage. Since the amount provided for comparison used a standard $100k or $200k amount, this might not be the amount of coverage you are looking for.
The form feels like a form telling your insurance agent that you are ‘interested to purchase, so give me a quotation’. This isn’t something new since I have contacted NTUC Income and Aviva directly and the manner is the same.
Eddy from DIY Insurance emailed me back 1 week later, with the quotation. I was able to get him to help provide a few other permutations, such as 2 different coverage durations, the same duration but for AXA policy.
Through the email Eddy also let me know of certain promotions involving the policies under comparison, even if its not my choice. If the rebates from these promotions are higher than the
30% 50% commission rebate normally provided, that takes into effect.
I made my choice on the policy that I would like to purchase, and they inform me to go down to their office at Providend’s Duxton Hill office to fill out the paper work. The challenge here, when you do it DIY, is that the insurance agent do not come to you, and that if you are a salaried worker like me, you will have to go during office hours which is between 9 am to 6.30 pm. Basically its challenging.
I couldn’t make it during office hours, but Josephine was kind enough to let me know they can stay behind provided I inform them when I am coming.
The office at Duxton Hill is a lot harder to get to. I kept confusing Duxton Road with Duxton Hill. What they can do is provide a series of pictorial navigation from train stations to make it easier.
The office was very cosy, much like a home. I met up with the Client Services Manager and their Specialist Consultant 3 days later to go through the paper work. The paper work are the standard underwriting paper work that you filled in when purchasing a policy.
They went through most of the questions with me and I was glad Anna, the specialist consultant, help me point out that, if I were to get this policy to replace another, its not really advisable and some of the differences between this policy and the old CI which I may have in place.
If you are expecting minimal interaction for a DIY process then this isn’t it, but I am sure glad with the information they brought up. At no point was there any mention of other related product category or the advisory service of their parent, Providend.
Eddy did ask me prior to this meet-up, whether I have any pre-existing conditions, which I stated I have some medical history. We filled up some additional medical declarations on the same meet-up. This saves a lot of time else I would need to waste another trip down to Tanjong Pagar.
Due to my medical history, there was a medical exam which was scheduled roughly 1 month away. I went through the medical examination and 3 days later, the premiums were deduced from my bank account.
The policy was approved. This took roughly 1.3 months from purchase order to approval. I felt it could be faster if there wasn’t a medical examination.
As with other purchase from DIYInsurance, there is a 50% rebate on commission. This would be paid when DIYInsurance receives the commission from the insurance company. The commission tends to be paid over a 5 years period, so I would expect the rebates to drip in yearly in small amounts.
Overall, the experience was very satisfactory, from a person who have bought a few policies over the years, understanding why some things cannot be avoided.
By sharing this experience, I am not hoping everyone go out and start cancelling their policy or letting it lapse. Replacing a policy with another does come with a fair share of risks. Your insurability comes into the question. It is also important to get adequate insurance when you are in the pink of health.
However, the number of people that depend on you changes, and you have to scale up accordingly. To avoid such insurability issues, take good care of yourself.
I start seeing the number of people that suffered from high cholesterol, high blood pressure, diabetes and hypertension or even heart attack before they turned 30 years old. Times have change.
Be aware of your overall plan, and when you want to make a choice, reflect to what extent it will compromised the plan.